This story is the second in a series Financial Planning Chief Correspondent Tobias Salinger is writing on how to build a successful RIA. Click here to read the first story on when advisors should consider starting an RIA, or find the series by following Salinger on LinkedIn.
In 2024, nearly 1,500 experienced financial advisors left wirehouses for another channel of the wealth management industry.
On the other hand, almost 900 joined the firms that are still referred to in industry shorthand with a name based on their old-timey branch communication method of private telegraph wires. And, for all of the talk in the profession about leaving Merrill, Morgan Stanley, UBS or Wells Fargo to be an “independent” advisor, those four firms alone manage about a third of the industry’s total assets.
That mixed statistical picture illustrates how advisors’ reasons for exiting the wirehouses and their timing for doing so are so specific to every one of them. In fact, experts say they often see teams that opt to stay with a wirehouse, even as their colleagues depart in search of, say, greater flexibility or the ability to own their businesses. Those moves represent a professional rite of passage, but not every advisor is ready to embark on it, said Cameo Roberson, CEO of advisor coaching and consulting firm Atlas Park Consulting.
Atlas Park Consulting
“Key factors advisors consider in staying at a wirehouse versus leaving often stem around payouts, compensation, benefits and/or succession agreements,” Roberson said in an email. “Moving with clients? Your startup costs to launch a standalone RIA can be hefty versus if you’re launching with no clients. If you have a large client base, legal considerations and who owns the ‘client relationship’ should not be overlooked. Not wanting to ‘start all over’ at this stage of your career is a big one. Personal factors to ‘staying put’ may also cover family obligations and financial responsibilities.”
READ MORE: Why and when do financial advisors change firms? It’s complicated
Two fundamental questions to consider
Marketing and compliance restrictions, product cross-selling conflicts of interest and compensation policies often push advisors away from the wirehouses, according to Jason Diamond, president of advisor recruiting firm Diamond Consultants. At the same time, lesser-tenured advisors frequently see reason to doubt that their clients will go with them out of a large, nationally known brand.
And the firms’ technology, staffing and other services “do absolutely provide a lot, even if advisors don’t recognize that or give them credit for that,” Diamond said. So, the first question is, are they able to move? Next is: do they want to?
“The advisor can move when the book of business is sticky to them,” Diamond said. “At some point, it just makes too much economic sense to move, because you do have that ability to monetize your business.”
The rationale behind advisors’ decisions to drop wirehouses usually fall into three buckets: a desire to be more entrepreneurial in the business, a need for succession planning or too many frustrations with the bureaucracy of a giant firm, said Lyle LaMothe, the chairman of New York-based Snowden Lane Partners. As a former advisor and the chairman of Merrill Lynch U.S. Wealth Management from 2008 to 2011, LaMothe said he is “very proud of my alma mater” and his 25 years there. But, like many advisors and executives, he saw greener pastures beyond.
“I would say listen to your inner voice. It’s what I did,” LaMothe said. “I knew it was something that I had to do, and I believed that the solution set was there.”
READ MORE: Fighting the tides of wirehouse attrition
The notable — and mixed — industry stats
The available numbers show that many are taking a similar jump. At 15% as of the end of 2023, the wirehouses’ share of advisor headcount had fallen below those of independent brokerages (17%), independent registered investment advisory firms (16%) and national and regional employee brokerages (16%), according to a report by research and consulting firm Cerulli Associates earlier this year. However, the wirehouses were managing 33% of the entire industry’s assets — more than double the proportion in any other channel.
Advisors are, generally speaking, leaving the wirehouse firms, though. At least 1,492 experienced advisors left wirehouses last year, and the firms collectively added only 887, according to Diamond Consultants’ annual tracking survey. That net decline of 605 represented a three-year high.
In contrast, the independent channel’s net gain of 689 was its largest incoming group in the past three years. Those firms “offer advisors more choice, autonomy and ease of doing business,” the report said, calling wirehouses “the clear losers of 2024.”
As a counterpoint, the wirehouse advisors “are, on average, the largest and most productive advisors in the industry,” the report added. And, by and large, they stay in that channel.
“Despite common perception to the contrary (‘everyone these days is going independent’), an advisor at a wirehouse is far more likely to join another wirehouse than any other type of firm/model,” it said. “Intra-channel movement dramatically outpaces inter-channel movement.”
READ MORE: Wirehouses by the numbers: How they stack up
It’s just not working anymore
So when an advisor leaps away from the wirehouses, they are responding to several considerations at once that are pushing them toward the precipice.
“This is a personal decision, and what you want now versus 10 or 15 years ago may have changed,” Roberson said. “In my experience, toxic managers and work environments can accelerate the decision to leave. If the current setup no longer meets your vision and how you want to work with clients, it may be time to evaluate an exit. Consider both the personal, work environment and financial considerations in determining whether to stay or go. Stepping out into the unknown can be gut-wrenching, but you know if something just isn’t working anymore — you feel it.”
Most wirehouse breakaway advisors “do not point to one single factor as the reason that they left,” Diamond said. These days, they’re “much more likely to find their version of perfect” with an expanding array of rivals “across what’s really become a pretty crowded landscape,” he said.
READ MORE: How the industry’s mixed signals point to further consolidation
Change isn’t always good
Potential breakaway advisors have to figure out whether they would like to be an entrepreneur in addition to an advisor, choose among competing economic bids and select the technology and company culture that’s the best fit for their goals. Whether they want to go or not, it never hurts to conduct a little due diligence on the idea.
Diamond Consultants
“I think that advisors are wise to do that periodically in their careers,” Diamond said. “If you feel incredibly content and incredibly well-served at your firm, it doesn’t matter what other options are out there.”
Advisors should carefully weigh their options against what is essential for serving their clients and running the business, LaMothe said. Some independent advisors are electing to get more support for the latter aspect by folding into a larger firm — even if they’ll never go back to the wirehouse channel.
“There’s a full spectrum of opportunity and it’s valid, but, at the same time, you really need to understand your personal strengths and weaknesses,” LaMothe said. “The last couple of years, almost in equal measure, we are experiencing inquiries coming in from the wirehouses and now from the independent channel.”
